Hong Kong: Japan’s Nikkei share average tumbled almost 10% and oil prices dropped to a one-year low on Thursday after downbeat US economic data spread fears of a more protracted and sharp global slowdown than initially expected.
Optimism about the stabilisation in money markets has been swept aside and widespread selling of global equities has resumed in earnest as the quarterly results season gets underway and reports filter in about sharp losses at hedge funds.
Relative to current earnings expectations, Asian stocks are oversold. However, upcoming corporate outlooks could influence whether estimates get cut, potentially adding another weight on equities and economic prospects. Financial market volatility as investors greatly reduce their exposure to risk has weighed on the global economic outlook, which has fed back into markets in a damaging circle.
“I think today there is just a combination of uncertainty and deleveraging in the market,” said Amar Gill, head of thematic research at CLSA in Singapore.
“International funds are pulling back and putting their money into whatever is safest, Treasuries or cash or paying off existing debt,” he said.
Japan’s Nikkei dropped 9.55%, weighed down the most by stocks of companies most exposed to global demand such as Canon Inc and Honda Motor Co.
The president of Toyota Motor Corp on Wednesday said the business environment has deteriorated beyond earlier expectations and predicted the key North American car market would remain sluggish through next year.
The MSCI index of Asia-Pacific shares outside of Japan fell 6%, locked in a downtrend that had brought it to a near 4-year low last week. The index is down by half so far this year.
Hong Kong’s Hang Seng index was down 6.1%, with the biggest losses racked up by commodity-related companies, such as Shenhua, China’s top coal producer.
Overnight US stock markets slid across the board, with the S&P 500 index dropping 9% after a report showed US retail sales dropped the most in more than three years.
“Bottom line, there is little positive to say about this market. The equity markets are impacted by the lack of liquidity in financial assets, terribly oversold conditions as well as unknown visibility on the macro economy,” said Thomas Lee, chief US equity strategist with JPMorgan, in a note.
Despite mixed messages from the Federal Reserve on the near-term outlook for interest rates, the futures market reflects a 50/50 chance the benchmark US interest rate could drop to 1 percent this month from 1.50%.
Even the most deft investors have been flipped by the ferocity of selling and risk reduction in markets. Citadel Investment Group, one of the world’s largest hedge funds, said September was the single worst month in the history of the company and warned of more volatility in weeks to come.
The yen pared some its overnight gains against the dollar and euro.
The US dollar rose 0.5% from late US trade to 100.25 yen The euro gained 0.6% to 135.25 yen and edged up 0.2% against the dollar to $1.3494
Anticipation of much slower growth and thereby reduced demand knocked raw materials prices, including metals.